What’s so ‘special’ about the weaker states?

SummaryThe government classifies states under the “special” category if they are located in hills, share international borders, have low per capita income and a low industrial base that restricts them from scaling up revenues and meeting their expenditures.

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When individual efforts and even central assistance fail to yield desired results, states start demanding for special category status. However, this status cannot be arbitrarily granted

What are special category states?

The government classifies states under the “special” category if they are located in hills, share international borders, have low per capita income and a low industrial base that restricts them from scaling up revenues and meeting their expenditures. Accordingly, central funds are allocated to accelerate economic development in these states.

According to a formula framed by former Planning Commission deputy chairman DR Gadgil in 1969, only three states—Jammu & Kashmir, Assam and Nagaland—qualified as special category states. The formula was modified in 1991 when Pranab Mukherjee was deputy chairman of the Planning Commission and reclassified as the Gadgil-Mukherjee formula. The formula was again revised in 2000. As a result of periodic reviews, the list of special category states now includes 11 states—all the seven north-eastern states, Sikkim, Himachal Pradesh, Uttarakhand and Jammu & Kashmir.

Which other states are demanding special status?

Bihar has been the most vocal in demanding special treatment. Chief minister Nitish Kumar has raised this issue at the National Development Council meeting last year and is actively parleying for it with the central government. Other states such as Chhattisgarh, Jharkhand, Odisha and Rajasthan have also been demanding special category status for a decade, citing economic backwardness, difficult terrain and international borders.

What extra benefits are enjoyed by special category states?

Apart from the share of central taxes as determined by finance commissions under the devolution formula (it was raised to 32% for all states by the 13th Finance Commission for 2010-15 from 30.5% in the previous five years), the special category states are entitled to get 30% of the Centre’s total Plan assistance. Of this share of central assistance, 90% is given as grants and 10% in loans to the special category states.

On top of these, the Centre offers full exemption from excise duties to companies setting up industrial units in these states for the first 10 years of production. Income tax exemption is also provided—100% exemption for first five years and 30% for next five years. Companies also get capital investment subsidy at the rate of 15% of their investment in plant and machinery. There are also other benefits under various schemes.

How did some of the mineral-rich states like Bihar became economically weak?

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